Regulation
India Maintains High Crypto Tax Rate Despite Industry Pressure
India has decided to maintain the current cryptocurrency tax regulations for the 2024-25 fiscal year, despite continued calls from industry leaders for a reduction in the current rates.
Finance Minister Nirmala Sitharaman confirmed this decision while presenting the budget for the fiscal year 2024-25 on Tuesday.
India’s latest budget keeps 1% cryptocurrency TDS
India’s latest budget presentation It comes five months after the interim budget retained the 1% withholding tax (TDS) rate on cryptocurrency transactions, a rule established in April 2022.
This regulation has led to a significant decline in trading volumes in the Indian cryptocurrency sector. It has therefore prompted industry representatives to advocate for a reduction in the TDS rate to 0.01% and the introduction of a progressive taxation on earnings. They have also called for the possibility of offsetting losses against gains for a fairer tax system.
Despite these appeals, the recent budget presentation indicates no changes at 1% TDS rate or flat tax of 30% on cryptocurrency gains. Also, long-term capital gains tax has been increased from 10% to 12.5% and short-term capital gains tax has been increased from 15% to 20%.
While the impact of these changes on cryptocurrency trading is still uncertain, the removal of angel tax for all investors is seen as a positive development. This move is likely to attract more Web3 startups and grow the startup ecosystem in India.
Indian Crypto Sector Faces Current Strict Policies
It is worth noting that Sitharaman was expected to retain the current crypto tax rates, given the government’s numerous warnings about the risks associated with cryptocurrency trading.
The Reserve Bank of India (RBI) has historically opposed cryptocurrencies. It banned financial institutions from providing services to the cryptocurrency sector in 2018, a decision overturned by the Supreme Court in 2020.
The RBI bulletin of May 2024 also reiterated the speculative nature of cryptocurrencies and criticized decentralized finance (DeFi) for being driven by speculation rather than genuine economic transactions.
Despite the stringent tax policies, the Indian cryptocurrency sector remains optimistic about future tax cuts, contingent on international developments, such as the promotion of cryptocurrencies by other countries or their legalization.
India’s Rigour tax regime has not hindered its global leadership in cryptocurrency adoption, as demonstrated by its top spot in Chainalysis’ Global Crypto Adoption Index 2023. The local industry continues to push for tax reforms, hoping for a more favorable regulatory environment in the future.
Meanwhile, the recent election results and the $234.9 million hack cryptocurrency exchange WazirX may have pushed cryptocurrency regulation further down the government’s priority list.